Globally, the availability of infrastructure is very critical to the economic, industrial, technological and social development of any country.
It is in acknowledgement of this fact that governments would seek to develop infrastructure such as housing, railroad, roads, energy, health facilities and telecommunication among others.
Infrastructure is specifically important to improving living standards of citizens, promoting private sector development, country’s business perceptions and competitiveness.
It is important in attaining a well-functioning economy. Reliance on government revenue like taxes and grants are never sufficient to fund these infrastructural developments. Increase in taxes is a disincentive, which places more burdens on the citizens and can cripple an economy.
Therefore, rather than relying strictly on internally generated revenue, governments can float bonds at intervals for specific developmental projects.
All tiers of government, their agencies and corporate organisations have the opportunity to finance their projects through the issuance of bond.
Different shades of bonds can be structured to suit the project peculiarities, investor’s expectations, concerns and issuers requirements.
Thus, there is Federal Government (sovereign) Bonds, Government Agency Bonds, State/Local Government (sub national) Bonds and Corporate Bonds.
There is no gainsaying that capital market is a critical pillar to long term fund mobilisation needed for capital formation to fast track economic growth and development.
The short term funding profile of the money market makes it unsuitable for project infrastructure investment hence the capital market, which creates an enabling environment for the generation of long-term financing and active private sector participation in infrastructure development.
In addition, the capital market provides variety of financing instruments and investor categories, which could lead to larger pool of funds than other financing options.
Although, Nigerian capital market had suffered monumental losses due to sustainable decline in stock prices that resulted in huge decline in investment value occasioned by the financial crisis, economic stakeholders have continued to call for the need to address the country’s huge infrastructural deficit in power, housing, roads, healthcare, port services among others.
Why capital market will aid development
The Securities and Exchange Commission, SEC, believes that the establishment of an active infrastructure fund via the capital market as being pursued by stakeholders would be immensely beneficial in closing the infrastructure gaps in the country.
Acting Director General of SEC, Ms. Mary Uduk, stated this at the annual conference of the Capital Market Correspondents Association of Nigeria in Lagos
Represented by the Head External Relations Department of the SEC, Mr. Sufian Abdulkarim, Uduk said international capital markets were the largest and deepest pool of financing in the world, and in conjunction with local capital markets, which represent an essentially untapped source of funds for infrastructure projects, they can make a huge contribution to economic development, if effective transaction structures are developed.
Uduk said the government could not be the sole provider/promoter of infrastructure projects, adding that private sector investment in infrastructure sector is also required.
According to her, “given the need to bridge the infrastructure deficit and the challenges of financing it, the county needs to leverage on alternative sources of infrastructure financing, such as the capital market. In view of the government’s bid to reverse the current growth trend, diversify the economy and develop infrastructure, there is no better time than now to leverage the capital market for sourcing of infrastructure development financing.
“The capital market provides an enabling environment for private investments in infrastructure projects and the SEC is doing its part to foster this through the implementation of the Capital Market Master Plan (2015-2025). The plan’s major objective is to transform the Nigerian capital market, making it competitive, while contributing towards the nation’s development through funds mobilisation.”
The acting DG said the Nigerian capital market had been used as a source of raising funds as early as 1946, when the colonial government floated the first loan stock worth £300,000 to fund its local administration, adding, “today, the Nigeria capital market has broadened and become more sophisticated as a result of various development initiatives advocated by the SEC
“There are various sources of funds available in the capital market which can be harnessed for infrastructure development, some of which are pension funds, Real Estate Investment Trusts (REITs), Collective Investment Schemes (CIS) amongst others. In addition, there are various capital market instruments that can be used for infrastructures financing, amongst which are the infrastructure project bonds, Sukuk, infrastructure debt bonds, green bonds and revenue bonds.”
She stated that over the years, several state governments had issued sub-national bonds to finance infrastructure projects.
The Federal Government of Nigeria (FGN), she said, also channelled some of the proceeds of its general bond issuance towards financing infrastructure, although it had no dedicated infrastructure project bond.
However, she said there was a change from this trend as the FGN issued two sovereign Sukuk consisting of N100 billion in 2017 and another N100 billiin in 2018 solely for infrastructure development, as well as two green bond in 2017 and 2019 valued at N10.6 billion and N15 billion respectively.
“Before then, the Osun State Government had issued Sukuk in 2013 for the construction of schools. The major justification for Sukuk issuance in Nigeria is the need to close the vast infrastructure funding gaps across the country because it is asset-based or project-based.
“Other projects that Sukuk can be used include mass housing, road, railway and airport construction, construction of schools, hospitals, acquisition of meters for DISCOs, and equipment for generating companies amongst others,” she added.
Concern by the spate of infrastructure deficits in Nigeria, the former Secretary General of Commonwealth, Chief Emeka Anyaoku, urged the Federal Government to utilise the capital market to develop the economy.
Addressing Principal Officers of Chartered Institute of Stockbrokers (CIS) during courtesy call to him in Lagos, Anyaoku explained that governments in developed economies utilised capital market to fund infrastructure projects.
He stated that all tiers of government should take advantage of long term investment opportunities in the market to raise long term fund for projects.
Anyaoku noted that there was a growing need for the Federal Government to mobilise private capital through the market to raise long term fund for infrastructure development.
“The capital market has important roles to play in the national economy. The managers of the capital market and the operators play pivotal roles. Developed countries did not just develop on the basis of government funding alone, but participation of the private sectors. I am happy that the Central Bank of Nigeria (CBN) is collaborating with Bankers’ Committee on how to fund the huge infrastructure gap in Nigeria through public private partnership.
“Many big companies in Nigeria are performing below average because of lack of resources. The resources provided by the government is inadequate. There is a need for mobilization of private capital to enable the companies operate optimally,” he said.
According to the Chairman, Progressive Shareholders Association of Nigeria, Mr. Boniface Okezie, “unless government begins to tackle the problem of infrastructure, we cannot expect a meaningful growth in the Nigerian capital market and the economy at large.”
Okezie noted that when adequate facilities are put in place, the economy would grow, quoted companies would record improved performance, declare profit which would impact positively on the market.
He said: “For the capital market to move forward, the drivers of the economy must put things right. If you do not develop infrastructure, you can not anticipate growth in the economy and this is having a multiplier effect on the market.”
According to the Managing Director, Crane Securities Limited, Mr. Mike Eze, “when the economy is growing, all other sectors will grow simultaneously, this probably accounts for the slow pace of growth in stock market. It is because the economy is not growing. It is the function of the growth in the economy that would determine what should be the living wage, how are people being paid, and what level of disposable income they have, from which they can invest on stocks.
“So, we are joining stakeholders like Manufacturers Association Nigeria (MAN), financial services sector, real sector and others to impress on the government that it is high time something drastic is done in the development of infrastructure that would propel the growth of our economy.
“More importantly, I am an advocate of improved lifestyle for the working populace of this nation. Where people could be seen to be earning a living wage that would leave enough disposable income for them to buy insurance.
“When more people are employed, the demand for goods and services would increase. The belief is that Nigeria is one of the countries where people are poorly paid. Look at the extent we went on the minimum wage which translates to N600 a day. What can anyone do with that amount of money?”
Improving the investment climate capable of attracting more investors to the capital market is germane to financing the nation’s infrastructure deficit.
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